Consumers have three distinct decisions to make in regard to the debit or credit conundrum. The first is which, if either, type of card you should have in your wallet. We recommend having both, considering the credit building benefits and rewards superiority of credit cards as well as the convenient access to cash provided by a debit card.
The second question one must answer is which type of card to use when making a given purchase. This is far less straightforward, as the decision typically depends on the amount of the purchase or the particular merchant that you’re dealing with. With that being said, we recommend using your credit card whenever you can, while only pulling out your debit card for low-dollar purchases and when you need cash. Credit cards offer superior fraud protection and the possibility of rewards, after all.
Finally, you may be wondering whether to select the “credit” or “debit” option when using a debit card in a store. We suggest choosing credit and signing for your purchase, as you will benefit from better fraud protection and the ability to meet certain account benchmarks that lead to certain fees being waved or rewards.
For a more detailed examination of these issues, continue reading below.
Debit or Credit: Which Should You Get?
As we’ve already noted, the bottom line is that you need both a debit card and a credit card. A credit card should be your primary spending vehicle, with the debit card being your primary pathway to cash. If you can, try to get cards on either the VISA or MasterCard network that do not charge foreign transaction fees. This will afford you worldwide spending convenience and access to the cheapest possible currency conversion.
|Get a Debit Card If…||Get a Credit Card If…|
|You want to withdraw cash.||You want to improve your credit standing.|
|You want to avoid debt.||You need to finance a purchase or transfer a balance.|
|You need to make small-dollar purchases from merchants that will not accept credit for such transactions.||You want to earn rewards on everyday spending.|
|To shop at stores such as Costco or Aldi that only accept debit cards (or credit cards from certain partners)||You want a guarantee of $0 fraud liability.|
|Info||You want fringe benefits like rental car insurance, price protection and travel insurance.|
For more information on the roles debit cards and credit cards can play in your financial arsenal, check out our Debit Card vs. Credit Card Guide.
Debit or Credit: Choosing at Checkout
With both a debit card and a credit card in your wallet, you might be unsure about which one to pull out when. We’ve considered the primary types of purchases consumers make and grouped them according to preferred spending vehicle below.
|Transaction Type||Debit or Credit?||Why?|
|Online Purchases||Credit Card||Credit cards have better fraud security.|
|Small-Dollar Transactions||Debit Card||Some merchants may not accept credit transactions under $10.|
|Cash-Only Transactions||Debit Card||Withdrawing cash from an ATM is much cheaper with a debit card that getting a credit card cash advance.|
|Cash Back at the Register||Debit Card||Only a debit card offers this feature, and only at certain retailers such as supermarkets. Keep in mind that you will want to select the “Debit” option when prompted at the point of sale.|
|Gas||Credit Card||You’d rather have the hold the station will put on your account ($50 - $75, in most cases) tying up your credit line than your bank balance.|
|Car Rentals||Credit Card||Credit cards offer complimentary rental car insurance.|
You’ll also avoid a hold/security deposit (usually around $200) tying up your bank account.
|Hotel Reservations||Credit Card||The hold (typically, $50 - $200 per day) will be easier to deal with, and you’ll also benefit from rewards potential and travel insurance.|
|Airline Tickets||Credit Card||Credit cards offer extremely attractive rewards as well as numerous other travel perks.|
|Restaurants||Credit Card||Restaurants are also fruitful hunting grounds for fraudsters intent on copying your card information, as you’re putting your plastic in the hands of complete strangers. In fact, copying a card’s magnetic stripe at a restaurant is one of the oldest credit card scams in the books. It’s thus best to keep your bank account out of things and instead benefit from a credit card’s $0 fraud liability guarantee.|
|Travel Transactions||Credit Card||It’s best to play things safe when traveling, not to mention that it’s far easier to get a no foreign transaction fee credit card than a no foreign fee debit card.|
|Person-to-Person Payments||Debit Card||Peer-to-peer payment services like PayPal and Venmo usually charge lower fees if you use a debit card rather than a credit card.|
Bottom Line: We ultimately recommend using a credit card for as many purchases as possible, due to a its superior fraud protection, how it makes fraud much easier to deal with in a practical sense, and because most people would prefer to have their credit line tied up by a hold from a gas station or hotel chain than their liquid cash.
Debit or Credit: When Using a Debit Card
One of the most confusing things that debit card users encounter is the option of choosing “debit” or “credit” after swiping their cards. The question seems counterintuitive; you’re using a debit card, not a credit card, so you’d obviously select “debit” – right? Not necessarily. The real choice your making is to validate your purchase using your account PIN (debit) or your signature (credit). If you select debit, you’ll use your PIN. Pick credit and sign. If you choose debit, money will be removed from your account immediately. If you choose credit, it will take a day or two to clear and you’ll have plenty of time thereafter to pay your bill.
Signature debit card transactions offer consumers better fraud protection than PIN charges, so we typically recommend selecting the credit option at checkout. Interchange fees for such transactions are more favorable to card issuers, so they give consumers a higher level of fraud protection to as a means of promoting such purchases. What’s more, if your debit card offers rewards, it’s likely that you’ll only be able to earn them if you select credit when making a purchase.
Choosing debit and verifying the transaction by inputting your PIN is really only necessary if you need cash.